China automakers: A report card for Jan-Feb

China’s vehicle sales rose 8.8 percent in the first two months of 2017 compared to the same period last year, according to the China Association of Automobile Manufacturers (CAAM).

In the month of February, sales rose 22.4 percent to 1.939 million units from the year before, figures released this past weekend showed.

In the two months to February, passenger-car sales were up 6.3 percent from a year earlier at 3.851 million units. Sedan sales rose 3.8 percent, while sport-utility vehicles sales surged 21.6 percent.

However, domestic brands have seen their market share in passenger cars suffer a slight decline.

In the first two months, Chinese automakers sold a total of 1.763 million passenger cars, up 6.1 percent from the year before. That represented a share of 45.8 percent of the nation’s total passenger car sales during the period, down 0.1 percentage point from a year ago.

In January-February, domestic brand sedan sales totaled 374,000 units, up 3.4 percent from a year ago. But the figure meant a market share of 20.3 percent, slightly less compared to the corresponding period in 2016.

Meanwhile, domestic brand multi-purpose vehicle (MPV) sales slumped 22.4 percent to 317,000 units. The number represented 89.5 percent of total MPV sales in the country, down 4.2 percentage points from the year before.

Sport-utility vehicles (SUVs) made by Chinese automakers jumped 28.3 percent to 978,000 units in the period. The strong figure, which represented 62.9 percent of total SUV sales in the country, helped lift the overall vehicle sales tally for the period.

Guangzhou Automobile Group (02238.HK) reported a 28.9 percent jump in sales growth in January and a 67.3 percent surge last month.

The company’s total vehicle sales soared 42.1 percent to 282,000 units in the first two months compared to the year-ago period. The automaker had in late January issued a positive profit alert, saying its 2016 earnings could show growth in the 30-55 percent range, thanks to surging sales of its own Trumpchi brand.

Guangzhou Automobile shares have a forward price-to-earnings (PE) multiple of 8.6. The valuation remains reasonable and there is room for upside given the company’s strong passenger car sales and SUV sales growth — 42.5 percent and 82.4 percent respectively — during January-February.

The company reported 167 percent surge in total sales last month, and its vehicle sales jumped 105 percent to 192,000 units in the first two months. The automaker has already achieved 19 percent of its annual sales target of one million vehicles.

Geely has lifted its brand and technology to a new level after acquiring Volvo in 2010. The firm has great potential if it seeks to tap into the overseas market in the future.

However, one should bear in mind that automaker’s forward PE already stands at 12.3 on the stock market. Investors can collect the stock only on dips for the medium to long-term.

Elsewhere, Great Wall Motor (02333.HK) registered 33.7 percent jump in SUV sales last month. Its SUV sales hit 148,000 in the first two months, up 19.5 percent from the year before.

The Haval H2 and Haval H6 models saw sales growth of 76.7 percent and 5.9 percent respectively in the two months to February.

Currently, Great Wall’s forward PE is 7.4 percent, lagging behind other peers. This is because the company has suffered gross margin erosion as pricing power weakened amid intensifying market competition. The valuation may continue to lag that of its rivals despite earnings growth.

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